In its tumultuous 40-year history Best Buy has seen the best of times and the worst of times. With its KM implementation, it is hoping to capture its best practices for all times.

Founded in the 1960s as a small chain called Sound of Music, Best Buy developed an approach to high-volume discount sales that caught on with customers. By the 1990s it was growing fast, with hundreds of stores and revenues that grew from $930 million in fiscal 1992 to $7.76 billion in fiscal 1997.

But earnings lagged. In 1992, the company reported a profit of $10 million; four years later, profits had grown to only $46 million. When a downturn in the personal computer market stuck Best Buy with millions of dollars' worth of unsold inventory, projections for 1997 showed the company would lose $6 million.

Management realized that its inventory and marketing systems were ineffective. "The team saw that we had pursued the wrong path in a number of key areas," President and COO Brad Anderson admits. "Even though we had grown our revenue very rapidly, we were immature."

Founder and CEO Richard M. Schulze concurred and they hired Andersen Consulting (now Accenture) to dissect its retail business practices and diagnose its problems. "They came back to us with a fundamental challenge to the ways we bought merchandise, managed our inventory and tried to produce profit," Anderson recalls.

Learning to Learn

The consultants' critique generated a top-to-bottom reassessment of the company. Beginning at the store level, Best Buy set out to:

1. eliminate waste

2. establish a uniform operating model in every store

3. create a more profitable product mix

4. improve inventory flow

5. target advertising more precisely

6. shift focus from products to customers

"We could have been much more profitable earlier if we'd had the knowledge that Andersen Consulting had," Anderson says. "We started talking about how to not wait for something to happen to us but to develop a culture where we are out in front of the issues."

Anderson wanted to accelerate the time to market not just for products and service innovations but also for the conversion of insight into business practice. He wanted to change the company culture to tap the experience and enthusiasm of every employee, not just senior executives.

There began a quest to become a "learning organization"--a long journey on which Anderson admits that Best Buy has taken only the first few steps. A primary goal was to capture and build on the collective knowledge of its extended enterprise. On one hand, Best Buy realized that shifting focus from products to customers would require knowledge from strategic partners such as IBM Corp., Microsoft Corp. and Monster Cable Products Inc. as well as consultants. At the same time, Best Buy had to shorten the learning curve for all its 60,000 employees and compress the time between devising a strategy and putting it into action. "When we learn something, we need to be able to communicate it to the body of the organization at an incredible rate of speed," says Anderson.

At first, however, there was only surface acceptance of the campaign. Anderson saw this attitude in top management, including himself. "There is an arrogance that grows out of believing, from a leadership standpoint, that you understand the environment, so why do you need this other perspective?" he says. "People believe they are learning more than they are learning and are open to more than they are open to.

"Ironically, the stores did it better than the corporate office, which none of us expected," he notes. "Part of that had to do with the leadership in the stores, where if something isn't working, it is in their face right away."

For example, employees now participate in monthly training about products, services and operations to stay current with new technology, according to Nancy Bologna, Best Buy's senior vice president for human resources.

KM Assists Learning

In November 1999, Best Buy officially launched its KM program. Primary responsibility was assigned to Rich Christiansen, vice president for enterprise systems, whose department already managed technology implications of the learning organization program. Christiansen made Allen Meyer his point man.

"We went from vision to strategy to execution," Meyer says. "Brad Anderson provides the vision. Rich Christiansen is our executive sponsor. I was named the program director."

Meyer's charge was to use knowledge management to turn the learning organization from a strategic goal into a working operation. "Sharing knowledge has always been an attribute of our learning organization, but executives saw the value of a formal program and tasked the IS group to add some tangible assets," he says. Meyer discovered that he had not only to implement a technology infrastructure but to construct the right arrangement of people, processes and enabling technologies to make sharing successful.

For help in figuring out this arrangement, Best Buy turned to the American Productivity and Quality Center, a nonprofit consultancy based in Houston. Cynthia Raybourn, a KM specialist for APQC, acted as chief facilitator. "Management at Best Buy have said, 'We want to be a learning organization, but what does that mean we should do?'" she explains. "There are activities and initiatives within knowledge management that help operationalize the notion of a learning organization."

Organizing the Project

The stated objective of Best Buy's KM program was to "enable the learning organization by tapping the creative capacities of our extended enterprise." For that purpose, the company defined KM as "systematic approaches to help information and knowledge flow to the right people at the right time so they can act more efficiently and effectively."

As Meyer and Raybourn conceived it, the tasks to implement KM at Best Buy fell into four key areas. 1. Create delivery vehicles such as an enterprise portal. 2. Organize relevant content and make it searchable. 3. Provide a way to identify and locate subject matter experts. 4. Establish communities of practice based on knowledge management principles and practices.

"Three things we did early on set us up to be successful," recalls Dave Mulligan, manager of Best Buy's KM program office. "Those were defining our project and KM goals at the highest level, setting up our KM organizational structure and coming up with selection criteria for our pilots and subsequently all of our projects."

Best Buy took a practical approach. Using teams and an action-oriented implementation plan, it would make technology the enabler to deliver community sites, expertise locators and an enterprise portal where knowledge was never more than two clicks away.

The first step was to set up the project's structure, teams and roles (see the diagram "KM Program structure"). KM working groups were organized at four levels:

• A top-level steering committee, composed of senior Best Buy executives from various aspects of the business, would provide strategic oversight, direction and resources. Its guiding principle was that capturing and sharing knowledge were integral to being a learning organization. It insisted that practicing KM had to be as easy as possible.

• An advisory board would act as the coordinating body to ensure that the corporation learned from experience and built KM capability for the future. As the chief learning community on KM, it had to develop strategies to spread the word that this practice was important and helpful. In pursuing this agenda, the board soon discovered that its communication strategy would have to be redefined at every stage of implementation. Like the steering committee, the advisory board receives monthly updates on all projects.

• Individual design teams would direct the projects within their communities, using KM tools and techniques to improve business processes. Overseeing all aspects of KM in its business unit, each design team would include representatives of HR, IS, marketing and project facilitators from the Best Buy KM program office and APQC.

• The knowledge management program office--the internal consulting practice for knowledge management--would facilitate project activities and the delivery of KM capabilities throughout the extended enterprise. Its job was to create the information infrastructure to support KM and to develop tools and training.

Community Efforts

By January 2000, Meyer's KM program office was ready for phase one of developing their communities of practice and the applications through which those communities would interact. For the pilot projects, they set out to identify communities of practice that could immediately share and reuse existing knowledge. These projects should deliver quick wins that would demonstrate to the company at large the value of KM by addressing real business needs; in the process of solving problems through KM, they should also produce "best practices" experience that could be applied to other areas of the business. Each project would have to be championed and paid for by a sponsor who could commit the necessary resources, not just in terms of funding but technologies and content already available.

With this in mind, the team selected the three most promising choices--two in service areas and one in retail. One of these pilots was a knowledge base for the service bays where Best Buy technicians install automotive sound systems. (For details on it, see the sidebar "A Mistake Not Made.")

As the design teams worked to build the knowledge sharing system for installation technicians, they queried them for tips and other knowledge to preload into the application so it would be ready to use. Their contributions fed the system while their ongoing feedback shaped it.

"In the planning phase and all the way through, we got stakeholders in the business units," Mulligan says. "We brought them in immediately and helped them design the system, figure out requirements and content and make it their own. [Doing that] creates enthusiasm and gets people hyped up for knowledge management."

Tuning the Tools

By August of last year, the KM design teams were ready for phase two. They enhanced the content, tools and functions of the three pilot communities with gatekeeping and reporting functions and more content. Then they standardized the processes and technologies for community projects and initiated eight new service and retail communities, all of which had been launched by January 2001--a little more than one year after Best Buy began its KM program.

Best Buy users access KM community applications through its enterprise portal from Plumtree Software Inc., which includes a home-grown community Web where explicit information is stored in a master knowledge repository. The communities are accessible from any networked PC in Best Buy stores and offices. Employees can share ideas, ask questions of experts and search for content.

Before any community of practice is launched, it is also marketed throughout the target group to build awareness and enthusiasm. Best Buy uses any medium available for this, from humorous videos to store bulletins to meetings.

Particularly important to the Best Buy plan are the gatekeepers, who are subject matter experts with primary responsibility for maintaining the community sites, validating contributions, monitoring usage and ensuring rewards and recognition.

The design teams, which do the lion's share of construction, do not dissolve after launch. They continue to drive the community with ongoing expansion and improvement. The KM program office, meanwhile, takes everything learned and developed for that community and looks for the next business unit with a problem to solve. Building on experience makes the job easier each time, according to Meyer.

Being an electronics retailer, Best Buy is eager to use technology in its KM initiatives. It has recently been experimenting with handheld devices equipped with wireless LAN access cards and barcode scanners, so a sales associate can scan any product to get technical information and sales tips from anywhere on the floor.

Today, Best Buy has 60,000 employees in more than 400 stores in 41 states. Since 1997, the company's value has increased by about 1,000 percent. Sales of $12.5 billion for fiscal year 2000 earned $347 million, while estimates for 2001 expect sales of $15 billion. Those figures don't count the value of Best Buy's new Musicland subsidiary, which operates an additional 1,300 music and video retail stores under the names Sam Goody, Suncoast, On Cue and Media Play.

By some accounts, Best Buy is adding one new store per day. On a single day in January, 10 store openings were announced. By 2004 the company expects to have 600 stores. At such a pace, it will need to share knowledge effectively if new sites are to be as successful as the established ones.